In June, the Labour government unveiled its Modern Industrial Strategy — a bold, long-term vision to revitalise the UK’s industrial and manufacturing base. Designed to provide stability and confidence for investors, the strategy lays out a ten-year framework to drive innovation, scale clean energy, and strengthen UK competitiveness in a global market.

At its core, the strategy targets three high-growth sectors: advanced manufacturing, clean energy, and the creative industries. With a strong emphasis on achieving net zero and delivering a decarbonised power system by 2030, the government has placed industrial resilience and energy security at the centre of its approach.

This report explores the key policy levers and regulatory reforms most relevant to stakeholders across the energy and industrial sectors. These include:

  • Network Charging Compensation Scheme (NCC) – addressing locational grid cost imbalances
  • British Industrial Competitiveness Scheme (BICS) – incentivising low-carbon industrial investment
  • Corporate Power Purchase Agreements (CPPAs) – scaling up direct access to green power
  • Nuclear Regulated Asset Base (RAB) – enabling financing for next-gen nuclear projects
  • RIIO-3 Price Controls – shaping future investment in electricity and gas networks
  • Reformed National Pricing (RNP) – aligning wholesale market pricing across the UK
  • Market-Wide Half-Hourly Settlement (MHHS) – unlocking flexible demand and smart energy use
  • Clean Flexibility Roadmap – supporting the development of clean, dispatchable power solutions

Together, these measures signal a shift toward a more coordinated, interventionist industrial policy — one designed not only to accelerate decarbonisation, but also to anchor economic opportunity and industrial growth across the UK.

Network Charging Compensation Scheme (NCC)

High industrial energy costs remain a persistent challenge for UK businesses competing globally. The Energy Intensive Industries (EII) scheme, introduced in 2017, offered targeted exemptions from non-commodity costs. In 2024, the British Industrial Supercharger (BIS) expanded these exemptions to include:

  • Full relief from Capacity Market charges.
  • Continued exemptions under the Renewables Obligation, Feed-in Tariffs, and Contracts for Difference.
  • Introduction of the Network Charging Compensation Scheme (NCC), which reimbursed up to 60% of network charges via the EII Support Levy, funded by non-EII consumers.

The Modern Industrial Strategy strengthens this further by raising the NCC compensation level from 60% to 90% starting April 2026, aligning the UK more closely with European competitors.

British Industrial Competitiveness Scheme (BICS)

The British Industrial Competitiveness Scheme (BICS), due in 2027, will broaden the scope of exemptions beyond the existing EII framework. Covering around 7,000 businesses across eight sectors, BICS is designed to support a wider swathe of UK industry.

Participating businesses will be exempt from paying costs associated with the Renewables Obligation, Feed-in Tariffs, and Capacity Market, though exclusions will remain in place for Contracts for Difference and network charges. Final eligibility criteria and exemption levels will be determined following a government consultation later this year.

Corporate Power Purchase Agreements (CPPAs)

Corporate Power Purchase Agreements are long-term contracts (usually 10–15 years) between businesses and renewable energy developers. They provide predictable electricity costs, support renewable deployment, and help companies meet net zero commitments.

As part of the Industrial Strategy, the government will issue a call for evidence on how to expand the role of CPPAs, including drawing on international best practice.

Despite their advantages, CPPAs can create challenges. Stringent credit requirements, contractual complexity, and contract lengths often exceeding normal business cycles can act as barriers for many organisations. Furthermore, repayment structures that tie buyers to long-term debt recovery may not align with corporate needs.

An alternative approach is the Utility Power Purchase Agreement (UPPA). These are facilitated by energy suppliers rather than through direct bilateral deals. UPPAs offer greater flexibility and can accommodate companies that may not meet CPPA credit or volume thresholds, enabling broader market participation.

Nuclear Regulated Asset Base (RAB) – Sizewell C

The government has confirmed the final investment decision for the Sizewell C nuclear project being built by EDF, the first new nuclear station since 1995. Once operational in 2035, it will deliver 3.2GW of baseload capacity, the equivalent of powering 6 million UK homes, with an estimated cost of £38bn.

Its financing will combine £36.5bn in government loans, £3.8bn in equity, EDF’s £1.05bn investment, £3.25bn from private investors, and £5bn in loan guarantees from France’s export credit agency.

The project will be delivered under the Regulated Asset Base (RAB) model, ensuring investors receive fixed, inflation-linked returns during both construction and operation. Consumers, however, will begin contributing from November 2025, well before the plant generates power.

The levy, managed by Ofgem and the Low Carbon Contracts Company (LCCC), will apply at:

  • Nuclear RAB Supplier Obligation Levy: £4.500/MWh (0.450p/kWh)
  • Nuclear RAB Operational Levy: £0.003/MWh (0.0003p/kWh)

Energy Intensive Industries will remain exempt, but other consumers will see the levy incorporated into bills.

RIIO-3 Price Controls

The RIIO-3 framework (Revenue = Incentives + Innovation + Outputs) sets out how network operators recover costs while driving efficiency and innovation. Covering April 2026 – March 2031, it applies to electricity transmission, gas transmission, and distribution, with electricity distribution (RIIO-ED3) starting in 2028.

Funding allocations include:

  • £8.9bn for electricity transmission investment.
  • £1.3bn in conditional “use it or lose it” funds.
  • £2.5bn for the national gas transmission system.
  • £12.8bn in baseline spending for regional gas networks.

For households, Ofgem estimates network charges will rise from £220 to £324 annually by 2031. Non-domestic impacts are harder to project, but draft tariffs suggest steep increases in Transmission Network Use of System (TNUoS) charges, including a potential 100% increase in 2026, followed by average annual rises of 15%.

Concerns have been raised about the scale of upfront increases, with calls for a more gradual phasing of cost recovery across the five-year period.

Reformed National Pricing (RNP)

The government has opted against zonal electricity pricing, instead advancing Reformed National Pricing (RNP).

Under this model:

  • A single national wholesale market is retained.
  • Reforms focus on TNUoS charges, connection queues, and strategic planning through the Strategic Spatial Energy Plan (SSEP) and the Centralised System Network Plan (CSNP).
  • Ofgem has prioritised reducing constraint costs, making network charges more predictable, and improving locational signals to guide investment in both supply and demand assets.

RNP is designed to give developers clearer forward-looking investment signals, reduce constraint costs, and align new generation projects with future network upgrades.

Market-Wide Half-Hourly Settlement (MHHS)

By mid-2027, the UK is scheduled to complete the transition to Market-Wide Half-Hourly Settlement (MHHS), a reform that will see all electricity supplies settled on a half-hourly basis. This shift will provide a much more detailed and accurate picture of consumption, allowing supply and demand to be balanced more effectively in real time.

The challenge of non-half-hourly meters

For consumers with Half-Hourly (HH) or Smart Meters, this transition is relatively straightforward, since these devices are already capable of delivering automated, high-frequency data. For traditional Non-Half-Hourly (NHH) meters, however, consumption data is still reliant on manual readings.

Historically, this limitation has been addressed by assigning NHH users to one of eight Profile Classes, based on consumption type and premises. Data from small samples of HH meters within these classes has been used to create load profiles, which in turn estimate demand across half-hourly periods. Suppliers then reconcile these estimates with actual meter readings when available. While functional, this method is imprecise and lags behind the near real-time requirements of a modern, flexible electricity market.

The Load Shaping Service (LSS)

Under MHHS, the current model will be replaced by a new Load Shaping Service (LSS). Operated by Elexon, the LSS will draw on a far larger dataset covering the entire market to generate more accurate consumption shapes. These profiles will be tailored not only by connection type but also by factors such as geography, customer segment, and the nature of the premises.

The LSS forms part of the new Central Settlement Services, which will also include:

  • A Market-wide Data Service to validate and cleanse meter data.
  • A Volume Allocation Service to reconcile supplier positions and allocate costs more accurately.

These services are expected to go live from October 2025, with suppliers migrating between October 2025 and October 2026, depending on when they qualify for transition.

The new system will bring settlement much closer to real-time, ensuring electricity usage is tracked and charged in a way that better reflects actual demand. This will support a more flexible, efficient, and decarbonised energy system.

However, businesses still operating traditional “dumb” meters will remain reliant on estimated data, even under MHHS. The only way to guarantee full accuracy — and enable optimisation of energy use — will be to upgrade to Smart or HH-enabled metering.

Clean Flexibility Roadmap

Released in July 2025, the Clean Flexibility Roadmap outlines how consumer and system flexibility will be scaled across the UK energy system. Flexibility refers to shifting demand, storing energy, and deploying responsive generation to balance supply efficiently and reduce emissions.

The roadmap highlights:

  • Consumer-Led Flexibility (CLF): potential to save up to £70bn by 2050 through voluntary demand shifting.
  • NESO commitments: setting annual targets for non-domestic CLF contributions through 2030.
  • Onboarding support: a dedicated NESO team to work with industrial and commercial participants from October 2025.
  • Charging reform: Ofgem’s review of Distribution Use of System (DUoS) charges to improve incentives for flexibility.

Three key conditions are emphasised for CLF success: appropriate incentives, strong consumer engagement with protection, and the deployment of enabling technologies.

Conclusion

The Modern Industrial Strategy marks a pivotal evolution in UK energy and industrial policy — one that reintroduces long-term, coordinated state intervention to align decarbonisation with industrial competitiveness.

By combining market reforms, targeted subsidies, and strategic planning tools, the government aims to establish a durable framework that supports investment, boosts energy resilience, and drives productivity across critical sectors.

Key measures such as the Network Charging Compensation Scheme, British Industrial Competitiveness Scheme, and Corporate PPAs demonstrate a renewed focus on levelling the playing field for UK industry, while reforms like RIIO-3 and MHHS seek to modernise the grid and optimise energy use at scale. The inclusion of financing mechanisms like the nuclear RAB model further illustrates a pragmatic approach to delivering essential infrastructure without overburdening private capital.

Yet, these changes bring complexity — and in some cases, rising near-term costs. Businesses will need to navigate evolving tariff structures, new settlement frameworks, and growing expectations around flexibility and emissions reporting. The pace and success of these reforms will depend not only on government delivery but also on proactive business engagement, technological readiness, and ongoing regulatory clarity.

The implications are real: rising network charges, new market structures, and expanding expectations around flexibility and emissions. But with the right strategy, these shifts also create new levers for cost control, resilience, and long-term competitiveness.

At ARO, we work with customers to navigate these complexities in a bespoke manner — identifying opportunities to reduce energy costs, secure green power, and prepare for regulatory change. Whether you’re managing multi-site operations or planning major capex, our team can help you stay ahead of the curve.

To understand how these reforms will affect your business — and how to respond — speak with the ARO Sustainability team today.